HSBC Equity Fund: SELL

Unit holders can exit the HSBC Equity Fund, given its insipid performance over the past several years. The fund figures consistently among the laggards in the large-cap category. A combination of failure to time the markets correctly as well as wrong sector and stock calls have worked against the fund’s interests.

In the last five years, it has delivered about 2.4 per cent returns (compounded annually), much below other established and predominantly large-cap funds such as HDFC Top 200, and BSL Frontline Equity, which have clocked 10-11 per cent returns. Investors looking for exposure to large-cap funds will be better off investing in these funds.

Uninspiring track record

HSBC Equity failed to beat its benchmark BSE 200 over one-, three- and five-year time periods. The underperformance is to the extent of 1-5 percentage points.

Besides, it has not caught on to rallies at the right time. The fund does not remain fully invested in equities across market cycles. While this strategy helps contain downside in market falls, a failure to ramp up equity holdings at the right time pulls down its performance in rallies.

For example, during the 2008 market crash, the fund reduced its equity exposures gradually to around 75 per cent of its total holdings. During this year, the fund’s NAV (net asset value) dropped only by 48 per cent, bettering the BSE 200 by 10 percentage points. But it failed to stock up quickly enough on equities when the market turned around in March 2009. This partly played a role in capping its returns in 2009 to 56 per cent, compared with the 84 per cent returns of the BSE 200 index.

Wrong choices

More recently, HSBC Equity figures among the underperformers in the large-cap funds basket in the 2010 and 2012 rallies, thanks to wrong sector and stock choices.

For much of 2009-10, the fund’s exposure to IT, pharma and auto stocks remained low. It held less than 5 per cent in the pharma and auto space. In 2012, it consistently held on to underperforming stocks such as Infosys, NTPC and GAIL and exited winners such as Zee Entertainment and HDFC Bank too early. It added to its holdings in other good performers such as Federal Bank and Apollo Tyres only in the second half of the year.

As of April 2013, the fund has about 33 stocks, with the top 5 accounting for 30 per cent of the total holdings. Banks and software are the preferred sectors.

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